Treasury Case Studies Unveiled at EuroFinance Asia 2013
After the opening speeches on day one of the EuroFinance Asia 2013 conference on 15 May at Raffles Convention Centre in Singapore, the 460 show attendees split into different topic streams, focusing on risk, liquidity and treasury best practice.
A number of case studies and project overviews were provided during the day one afternoon sessions at the conference from British American Tobacco (BAT), local sport retailer RSH, HP and others. The aim was to illustrate treasury best practice and share peer knowledge among attendees. A selection of the highlights follows.
Supply Chain Finance: Atlas Capco China Treasurer
China is the modern ‘workshop of the world’ with many of the globe’s manufacturing components now emanating from the fast-growing industrial base, which means its firms are often at the centre of many physical and financial supply chains. You cannot manufacture in the 21st century in many instances without at some stage dealing with a Chinese supplier or partner. The point was well made by Audrey Deng, head of group treasury at Atlas Capco China, which manufactures air compressors and other industrial equipment for the food and drinks sector, mining industry and other target markets.
Atlas Capco is a 140-year-old corporate, headquartered in Sweden, but the firm wanted to improve its supply chain finance in its Asian and Chinese operations, so that it could harmonise payments, improve working capital, and better support supplier funding. Deng explained to the audience at EuroFinance Asia 2013 that his firm’s first steps towards achieving this aim were to launch a feasibility study and to then work out how to reduce days sale outstanding (DSO) and improve the balance sheet ratio in the supply chain, releasing working capital by getting paid more quickly.
Atlas’ treasury and procurement teams were in charge of implementation of the supply chain financing project, which went live in November 2012. It will eventually include 17 factories in China, India and Japan for domestic and overseas purchases, in both local currency and US dollars (USD). A key part of the value proposition was the interest rate differential for suppliers. Deng said the most important lesson is that it is important to educate suppliers and convince them to join the programme voluntarily.
“If suppliers are cash rich, we highlight how they can reduce DSO and improve the balance sheet ratio,” said Deng. “Other suppliers think this is too good to be true: if they understand it they will join.”
JP Morgan’s Singaporean head of trade, Chetan Talway, was sharing the stage at the show session as the project partner. He explained that a key part of the implementation was communicating with and training the suppliers. The crucial element for success was defining the objectives and scope of the programme, obtaining internal support, and then defining which suppliers to work with first.
Deng concluded by admitting that there is not a timeframe for project payback, but one of the key objectives was also a longer days payable outstanding (DPO) outcome, so that Atlas Capco can stretch its working capital by paying later. The corporate treasury plans to achieve that within the next two years of the on-going programme.
Streamlining Receivables: BAT
Group treasurer at British American Tobacco (BAT), Russell Phillips, told the next afternoon session, focusing on risk, at EuroFinance Asia 2013 that his corporate’s top three challenges were around managing cash better, using funds caught in the banking system more effectively, and improving information exchange. BAT wanted better data sharing so that the group could use the rich information it receives from customers for auto-reconciliation, enhancing its account receivables (A/R) procedure.
BAT’s key project objectives for improving A/R were to release working capital, reduce the days’ sales in accounts (DSA) receivable ratio, and to improve efficiency. As an added benefit the project should also give the firm greater control over its cash and risk procedures.
The treasury wanted to improve efficiency for its direct sales force in Indonesia, where 5,000 salespeople service about 550,000 customers, including 500,000 very basic retail outlets. While key accounts and local distributors paid with electronic funds transfer (EFT), many others used bag collections, which presented a problem for the treasury.
BAT partnered with its bank HSBC, represented on the panel by senior vice president, Amy Ng, to develop a standardised scalable process. Ng added that the three key areas the bank and BAT focused on were automation, visibility and standardisation.
The tobacco firm wanted to move customers that paid by cheque to funds transfer, and even though Phillips called mobile collections “a bugbear”, he said it was a useful element in the eventual solution. Some customers can still use cash, as it also has a place given the environment in Indonesia. The key success factors, Philips said, were around people, technology, knowledge and network. The most important contributors to the success of the project were education, training and collaboration.
Upgrading Treasury With E-banking: RSH Holdings (Singapore)
The chief financial officer (CFO) at sports retailer RSH Holdings in Singapore, Lelaina Lim, did not have far to travel to join the crowd at EuroFinance Asia 2013. She provided an overview of the corporate’s growth and treasury evolution, along with Standard Chartered Bank’s director of transaction banking, Pauline Lim.
After growing rapidly from a small sporting goods company to having 800 distribution points in 10 countries and nearly US$1bn in sales, RSH stepped back recently and looked at how it could improve its treasury operations. It found that it faced challenges from using manual spreadsheets, handling 29 different bank relationships and having highly manual processes for remittances, dividends, recovery and reconciliation. This needed to change and electronic e-banking was identified as the answer.
After implementing e-banking, Lelaina Lim said RSH reduced its manual processes and reconciliation. It now makes better use of idle cash, has cut the risks associated with manual processes, and reduced the need for excess working capital. Using e-banking also meant that the information flow back to the head office is almost instantaneous and cash visibility has improved significantly. E-banking has also enabled RSH’s treasury to do cash pooling, sweeping and reconciliation.
While improving efficiency, RSH has simultaneously cut the number of banks it has to deal with from 29 to 11, thanks to the e-banking project. The company negotiated with five key banks so that it could use standard term sheets for working capital relationships. Along with enhanced bank relationships and less paperwork, RSH saved money on bank fees and commissions.
RSH is now looking to introduce a more efficient and integrated SAP enterprise resource planning (ERP) system. If the ERP system connects to the bank, Lelaina Lim said RSH’s payments can go online, corporate cheques can be issued, and it will reduce float. RSH is also working on rolling out more treasury policies to enhance controls, and to ensure staff adhere to trading and hedging limits.
She added that her biggest fear at the moment is fraud at the front end, as cash reconciliation presently takes six days and a lot of manpower. “I’m hoping to reduce that to the next day, and to sleep better.”
HP Outsources Document Management and Embraces Digital Invoicing
Manvendra Upadhyay, the APJ portfolio finance lead at HP Financial Services in Singapore, concluded the case study presentations at EuroFinance Asia 2013 by talking about how the firm’s Indian operation embraced digital invoicing.
He explained that HP in India processes 15,000-18,000 invoices per month, and each invoice typically had up to 15 pieces of paper in order to meet national regulatory requirements. Processing more than 220,000 items per month required a lot of manpower. This manual operation previously meant errors were common and cash flow accuracy was negatively impacted. The treasury at the technology giant also sometimes had foreign exchange (FX) losses, and a burden in finding paperwork when regulators asked HP for invoices. The treasury decided it couldn’t keep doing things the same way so decided to digitise its invoicing.
After evaluating alternatives, HP looked to banks for a standard solution that could be customised for HP’s internal invoicing procedures. The corproate eventually decided to outsource its document management to a bank, with Nirmal Khaderia, head of Asia-Pacific global transaction services corporate sales at Bank of America Merrill Lynch, joining the panel to explain how they helped.
The move towards an outsourced and electronic invoicing system for HP India took three months. After implementation, Upadhyay said HP received the customised reporting it wanted and a fully indexed copy of all invoices. The outsourced solution has also been integrated with other systems in the company. The treasury achieved better cash flow and FX management, improved exception handling and has increased efficiency by reducing manual work. Upadhyay estimated that HP saved about US$1m per year by implementing the solution, and staff can now be deployed on value-added work rather than mundane checking.